Madison Holdings Group (HKG:8057) Is Making Moderate Use Of Debt

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Madison Holdings Group Limited (HKG:8057) does use debt in its business. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Madison Holdings Group's Debt?

As you can see below, at the end of September 2025, Madison Holdings Group had HK$171.0m of debt, up from HK$159.5m a year ago. Click the image for more detail. On the flip side, it has HK$64.9m in cash leading to net debt of about HK$106.1m.

A Look At Madison Holdings Group's Liabilities

We can see from the most recent balance sheet that Madison Holdings Group had liabilities of HK$195.2m falling due within a year, and liabilities of HK$604.0k due beyond that. On the other hand, it had cash of HK$64.9m and HK$230.2m worth of receivables due within a year. So it can boast HK$99.3m more liquid assets than total liabilities.

This surplus strongly suggests that Madison Holdings Group has a rock-solid balance sheet (and the debt is of no concern whatsoever). With this in mind one could posit that its balance sheet means the company is able to handle some adversity. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Madison Holdings Group will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

View our latest analysis for Madison Holdings Group

In the last year Madison Holdings Group wasn't profitable at an EBIT level, but managed to grow its revenue by 3.4%, to HK$70m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Over the last twelve months Madison Holdings Group produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable HK$14m at the EBIT level. That said, we're impressed with the strong balance sheet liquidity. That will give the company some time and space to grow and develop its business as need be. The company is risky because it will grow into the future to get to profitability and free cash flow. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 3 warning signs with Madison Holdings Group , and understanding them should be part of your investment process.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.